Disney, Fox, and the painful path to a la carte TV

Disney's latest move could hasten the TV bundle's collapse, but not without consequences.

Disney announced last week that it would spend a staggering $52 billion on Fox's TV and movie businesses, and it wasn't long before CEO Bob Iger started making big promises.

The deal, Iger said, would prepare Disney to "flip a switch" and distribute its most popular programs directly to consumers, rather than tying them to a TV bundle. Disney's own streaming service, scheduled for 2019, could get rounded out by Fox-owned shows like The Simpsons. Hulu, under 60 percent Disney ownership, would focus on adult-oriented programming to take on Netflix. And ESPN, whose own standalone service is coming next year, could get a boost from Fox's regional sports networks. Iger even hinted at letting people subscribe to all three services as a bundle.

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Disney must convince regulators that its mega-merger won't harm consumers, so it's probably no accident that Iger's vision sounds a lot like the a la carte model cord cutters have dreamed about for years. Still, the TV bundle is a long way from total collapse, and in the meantime, Disney will gain immense power over how much consumers will pay for all those channels. The result may be a faster decline for TV as we know it, but with plenty of consumer pain along the way.

The bundle's breaking point

Disney isn't planning to acquire all of 21st Century Fox. Instead, Fox would keep its broadcast network and stations, Fox News, Fox Business, FS1, FS2, and the Big Ten Network, spinning them all into a separate company before the deal becomes final. That would leave Disney with Fox's TV and movie studios, FX, regional Fox sports networks, and National Geographic.

Combined with Disney's existing ESPN, ABC, and Disney-branded channels, the result would be unprecedented leverage over cable, satellite, and streaming-TV providers. When Disney seeks higher carriage fees for expensive sports channels, for instance, TV providers who push back would risk losing not only national sports from ESPN, but hometown team coverage from Fox Sports networks. They'd be under greater pressure to accept Disney's demands, and pass the added costs onto subscribers.

Disney could also use its newfound muscle to ensure that ESPN--by far the most expensive cable channel--doesn't get left out of the most popular bundles. TV providers have faced Disney's wrath for trying to circumvent ESPN in the past; owning additional channels would help Disney keep those providers in line.

The deal could even jeopardize some streaming bundles that don't already package Disney and Fox channels together. Sling TV, for instance, offers separate Orange ($20 per month) and Blue ($25 per month) packages, the former with ESPN channels, and the latter with Fox Sports networks. FuboTV offers Fox Sports networks, but not ESPN, in its otherwise sports-centric $40-per-month streaming bundle. It's hard to imagine Disney letting those arrangements stand if it owns both networks.

Put another way, acquiring Fox's TV business would help Disney make sure that it's the key component of almost every TV bundle, whether it's traditional cable and satellite service, or a newer streaming package. Even as costs escalate and subscribers dwindle, TV providers would have limited power to cut Disney loose.

A la carte implications

The flip side to Disney's unchecked bargaining power is that it could accelerate the TV bundle's total implosion. Faced with higher prices and limited flexibility, more people will likely abandon TV bundles altogether, opting for standalone services such as Netflix along with free over-the-air broadcasts. This in turn would cause even more skittishness among Disney's competitors, who increasingly feel dragged down by oversized TV bundles in which ESPN is mandatory.

A streamer with limited appeal

Already, you can see those networks plotting their own escape from the TV mega-bundle. Discovery, Viacom, AMC, and A&E have banded together to launch Philo, a $16-per-month sports-free streaming package. Turner has been dabbling in standalone streaming with Filmstuck, Boomerang, and an upcoming sports service. CBS struck out on its own with All Access, Showtime, and the free CBS News. CBS also has a highlight-reel sports streaming service in the works. NBC is reportedly eyeing a standalone venture for next year. Over time, these services will help convince more people that they don't need a channel bundle.

Not that any of this poses a problem for Disney. As Iger suggested, the company will simply shift greater amounts of popular programming to its trio of standalone streaming services while the bundle burns down. With its additional bargaining power, Disney could even avoid the kinds of restrictive clauses that cable providers reportedly put into their contracts, which discourage networks from offering their shows outside of a pay TV package.

Granted, this won't be quite the kind of a la carte TV that people have envisioned. Instead of a great unbundling of cable channels, TV networks will look to consolidate their programming into new services, aimed at competing with established streaming rivals like Netflix and Amazon Prime. Those who stick with traditional TV bundles will suffer the most as that model gets run into the ground, and as companies like Disney look to rise from the wreckage.